Isolationism is Back

The developed world is changing in a profound manner and not for the better. Since the end of the Second World War, countries have generally tried to integrate both economically and socially with each other.

More open barriers has been a key stalwart of economic growth since it became practical, under the protection of free trade, as imposed by the Royal Navy for many years.

In our modern world we have supply chains crossing the world. Without such open trade we would not be building Airbuses or many other complex products.

And such free trade lowers costs for consumers, we may not like our iphone being built in China, but they would be significantly more expensive if made in the USA.

Free trade stops wars; between 1871 and 1945 Europe tried to pull itself a part, whatever weaknesses the EU has it brings stability.

We now have two massive open markets, Europe with 500m consumers and North America with 475m. Both economic blocks are getting closer to fragmenting and retreating behind trade walls.

Something has fundamentally changed, a significant percentage of people are rejecting internationalism and retreating into their tribes. As we have discussed before when people are scared they retreat into social groups in which they feel safe and protected. These can be ethnicity, religion or gender.

What was clear from both the Brexit vote and the election of Donald Trump is that politicians were prepared to feed on individual groups and flan their fears. But those fears are real; over the past decade the gap between rich and poor has expanded. And unless politicians can be seen to be solving this gap, then this revolution against traditional politicians will continue

Six months ago the idea the UK would leave the EU, or America would have voted in Donald Trump would have seen ridiculous.

Donald Trump has promised the tearing up of trade deals, ignoring climate change rules and building a big wall. Even if he only does apart of that, it takes America towards isolationism. The power gap this will cause is more likely to be filled by China and Russia than Europe.

The EU is potentially even more fractious than North America. The UK decision to leave the EU, and the election of Donald Trump are game changers. The unthinkable is now very much on the agenda; once someone has crossed the Rubicon it is easier for everyone else.

In Italy in early December Matteo Renzi puts his constitutional changes to the people, and he may well loose, leaving “The Five Star Movement” with a real chance of power. Their attitude to the Euro and the EU are broadly negative.

2017 brings the French Presidential election, Marie-Le Pen looked recently as having little chance of winning, that has changed markedly since the US vote. Marie-Le Pen wants France out of the EU as soon as possible.

Next year also brings the Dutch election and the opposition are campaigning on an in out referendum. And on top of these major players one has countries like Greece and Spain who have suffered under EU imposed fiscal cuts, and might choose to leave a fracturing EU.

Teresa May has been criticized for not laying out her negotiating plan, when she has no idea what kind of Europe she will be negotiating with in a year, or even if the EU as know it exists.

Sadly the world is becoming more Isolationists, and that will be bad for trade, economics and safety.

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